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Judith Morris Judith Morris Consultant
01 September 2017

Lasting powers of attorney in growth business

This article was first published by Growth Business.

Do you need a business lasting power of attorney?

Most people will connect Lasting Powers of Attorney (LPAs) with an elderly friend or relative with dementia. So what use can a ‘business power of attorney’ be?

What is an LPA?

An LPA is a special form of power of attorney which enables an individual to choose someone to act on their behalf if they were to have problems with mental capacity, whether as a result of a degenerative disease such as dementia or because of temporary problems, following an accident for example. They are not just for the elderly. Almost everyone with family or financial responsibilities should have one.

However, very often the individual that you might want to deal with your personal finances is not the person who should be handling your business finances. So you may need a second LPA, appointing different individuals, for the business-related aspects.

Sole trader or partnership?

Do not assume however that, having done this, you have wrapped the issue up nicely and that this trusted person would have complete ability to act in all the ways that you can.

For a sole trader a suitable appointment of a business attorney may be ok, enabling the business to pay its bills until you are able to take up the reins again.

In a partnership an LPA may help but the best route needs to be identified in the context of the overall terms of the partnership agreement.

Corporate structure?

A corporate structure needs good legal and business continuity planning advice on what would – and what should – happen if a key person died or suffered mental capacity problems, whether as part of a slow decline or as a result of a traumatic incident. For surprisingly many otherwise thoughtful individuals and organisations, this never quite rises to the top of the to-do list.

A classic set up for modern successful business is one individual, or a very small group, with different skills – one is finance, one is technical, another is marketing – who have created a flourishing business that relies on the skills of all of them.

The death of one of those individuals, or a loss of mental capacity, is likely to cause conflicts of interest and stresses. The needs of the business as a whole may not be the same as the interests of those who will benefit from the shareholding on a death, or who will be taking care of the incapable person. These strains might damage the undertaking, or might even precipitate a crisis that could threaten the existence of the business.

Business continuity health check

These are not easy matters to face. But it is much better to agree the way forward before problems have arisen when the interests of the parties are pretty much aligned – everyone wants to protect their own position, but their care for the future of the business creates reciprocity.

Business LPAs will not be a silver bullet, though they may be part of the answer. A director cannot delegate his duties and activities using an LPA. The articles of a company will generally provide on the lines that, where someone has been incapable for six months, specific steps are triggered. Six months is a long time for a business, especially in these uncertain Brexit days when agility of decision-making is likely to be vital. Moreover the tensions caused by needing to obtain the family’s cooperation in obtaining any necessary medical certificates etc will add unwelcome difficulties. The clearer these things are in advance, well understood by all, the better.

To sum up

So do you need a business LPA? Yes, maybe. But don’t just ‘get something signed’. To be useful it needs to be part of an overall business continuity health check.

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